Category management is a distributor/supplier process of managing categories as strategic business units, producing enhanced business results by focusing on delivery to the consumer. It has grown in importance since point-of-sale scanning allowed for accurate assessment of product movement.
For the category leader the benefits are enormous – they have the opportunity to control, influence and direct the category. It can be more difficult for a minor player unless they are able to demonstrate how the category as a whole can benefit from their move to a greater position of influence. In such circumstances clarifying the opportunity in strategic terms is the key to success.
To implement category management it is essential to have a consistent strategy and a standardized business process. The process consists of six steps:
Category definition: decide what category your product fits into.
Assessment: identify sales, profit and return required.
Strategy: develop demand and supply-chain strategies for the category.
Tactics: determine the assortment, pricing, shelving and promotions required to achieve the plan targets.
Plan implementation: implement the category business plan and strategies through the store.
Category review: monitor category performance versus plans on an on-going basis, e.g. how have your product, your sales and, ultimately, your bottom line improved?
Category management should be viewed as a demand/supply chain process with a manufacturer/ retailer interface.
For the manufacturer there are product management functions, which should be organized into category. Similarly for the retailer there are customer management functions that need to be aligned to the category management functions for maximum impact.
The strategy is the link between a company's overall mission and the role of category management.
Retailers and suppliers must answer a number of questions before starting the category management business process. They are:
What is the company's overall mission?
What is the basis of competitive positioning?
What are the key corporate goals?
Who are the target consumers?
What are the key strategies relating to price, assortment, promotion,Customer
Service and product supply?
What is the present relationship between the retailer and the supplier?
The answers to these questions provide key strategic directions and a framework to build upon.
CONSUMER FOCUS
Category management requires the target consumer to be the basis for the competitive strategy. It is essential to understand the target consumer and consumer behaviour that affects retail strategy and consumer purchases.
Three questions managers should ask themselves are:
How do consumers choose stores for shopping?
How do consumers choose products?
How do in-store category tactics affect consumer choice?
It is important that space allocation, shelf presentation, assortment, pricing and promotion are dealt with carefully to get the right message across to the consumer.
Market research can help with this, but there are also four key points that should be kept in mind when choosing a retail outlet. They are:
Location of the store.
Product/brand variety.
Price.
Shopping environment – fast checkout, friendly staff and the atmosphere within the store.
Retailers can influence the consumer through merchandising tactics as part of their category management plan. These include:
Space allocated to a category and to a brand within a category and the location of the brand, i.e. top shelf versus bottom shelf.
The assortment offered – items added to or dropped from the category.
The pricing decision – high/low or everyday pricing.
The promotion decision – features, in-store displays, sampling.
MANAGING THE RELATIONSHIP
Collaborative relationships between trading partners are not always easy to achieve by the category management business process. Both distributors and suppliers need to develop databases that integrate their internal data with external market/competitive data.
To assist in avoiding problems, category management teams should ensure that:
Both parties are allowed to put across their perspective
The category has a co-ordinated internal programme
The category has a co-ordinated external programme
It has the appropriate level of resource allocation.
A substantial amount of work has to be carried out in terms of research and putting strategies in place to be able to implement category management and, subsequently, improve on business processes. To be successful, suppliers and retailers have to adopt a new way of working together.
Contributed by:Nithin Narayanan
